Xanadu Mines Ltd (
ASX: XAM,
TSX:XAM) (
Xanadu or the
Company) is pleased to announce the execution of
formal documentation for Phases 2 and 3 of the transaction with
Zijin Mining Group Co., Limited (
Zijin)1. This
entails Zijin subscribing for additional shares in Xanadu to
increase its corporate shareholding to 19.99% and the formation of
a 50:50 Kharmagtai Joint Venture (
Kharmagtai JV)
through Xanadu’s 100% owned subsidiary Khuiten Metals Pte. Ltd.
(
Khuiten), which holds a 76.5% effective interest
in the Kharmagtai copper-gold project
(
Kharmagtai).
The significant cash investment by Zijin
provides funding for the Pre-Feasibility Study for Kharmagtai
(Kharmagtai PFS) which will commence in early 2023
and take the project to a potential Final Investment Decision
(FID) as early as 2024. These funds will also
drive Xanadu’s exploration growth program, which will target
high-grade mineralisation at depth, higher-grade deposit
extensions, and new discoveries within the 66.5 square kilometre
tenement.
Highlights
-
Key documents executed include a Subscription Agreement for the
placement in Xanadu (Phase 2 Placement) together
with a Subscription Agreement and Joint Venture Shareholders’
Agreement with respect to Khuiten (Phase 3 JV),
creating a binding partnership with Zijin, the fifth largest global
copper mining company2.
-
Completion of the Phase 2 Placement will raise approx. A$7.2
million for Xanadu (before costs) and increase Zijin’s shareholding
in Xanadu to 19.99% with the issue of approx. 179.1 million shares
at A$0.04 per share. The funds raised in the Phase 2 Placement will
be used for (a) the exploration of Xanadu’s highly prospective Red
Mountain project; (b) new project generation in southern Mongolia;
and (c) corporate regulatory and administrative costs.
-
Under the Phase 3 JV, Zijin will invest US$35 million into the
Kharmagtai project in return for the formation of a 50:50 joint
venture through Xanadu’s 100% owned subsidiary Khuiten. The US$35
million will be used to complete the Kharmagtai PFS, continue
exploration and support associated expenditure on the project’s
development.
-
Upon delivery of the Kharmagtai PFS, Xanadu will have certain
rights to partially or fully selldown its project interest in
Kharmagtai to Zijin. These rights (structured as put options)
provide flexibility for Xanadu to manage its exposure to future
funding requirements of the project as well as provide optionality
to potentially realise value for shareholders after the economics
of the project development are better defined.
-
In line with prior communications of the Strategic
Partnership3:
-
Xanadu will remain operator of Kharmagtai until the earlier of
delivery of the Kharmagtai PFS or 18 months from completion of the
Phase 3 transaction, with Zijin as operator thereafter.
-
Agreements remain subject to certain People’s Republic of China
regulatory approvals, and Xanadu Shareholder approval at its
upcoming Extraordinary General Meeting (EGM)
scheduled to be held in February 2023 and other conditions typical
for transactions of this nature.
Executive Chairman & Managing
Director, Colin Moorhead, said, “We are pleased to have
finalised these agreements, achieving a mutually beneficial, long
term partnership with Zijin, an experienced international developer
and top 5 operator of large scale, open-pit copper-gold projects.
Once completed, Xanadu will be in a very strong financial position,
fully funded to take Kharmagtai to a decision to construct and
capitalised to accelerate exploration programs across its highly
prospective Kharmagtai and Red Mountain tenements. The deal
structure enables us to deliver value for our shareholders in the
future, irrespective of the prevailing market conditions.
We’re looking forward to unlocking the full
potential of both the world-class Kharmagtai project and our
exciting Red Mountain advanced exploration project, during a period
when we believe prices will be well supported given the global
aggressive shift to electrification to achieve decarbonisation
goals.”
Strategic Partnership
Under the Strategic Partnership3, Zijin is
investing at both the Xanadu corporate level and Kharmagtai project
level through a series of transactions:
-
Phase 1 Placement already completed; Zijin
acquired a 9.84% interest in Xanadu, with the issue of 139 million
shares at A$0.04/share.
-
Phase 2 Placement will increase Zijin’s
shareholding in Xanadu to 19.99%, with the issue of approx. 179.1
million shares at A$0.04/share (an approx. 43% premium relative to
Xanadu’s share price at 19 December 2022).
-
Phase 3 JV (or Kharmagtai JV)
will result in the parties establishing a 50:50 incorporated joint
venture in Khuiten, the entity currently wholly owned by Xanadu
which holds a 76.5% effective interest in the Kharmagtai project,
in return for Zijin injecting US$35M into Khuiten to support the
Kharmagtai PFS and associated expenditure on the project’s next
phase.
Zijin’s total investment in the Strategic
Partnership with Xanadu is estimated at approx. A$64 million4, of
which approx. A$12.8 million will be invested in Xanadu shares and
approx. A$51.5 million (US$35 million) directly into
Kharmagtai.
Zijin has already received approval from the
Australian Foreign Investment Review Board (FIRB)
in respect of the investment5. Remaining approvals include People’s
Republic of China (PRC) regulatory approval and
Xanadu shareholder approval, which are expected in Q1 2023.
Phase 2 - Placement
The Phase 2 Placement will involve Zijin
subscribing for an additional tranche of ordinary shares in Xanadu
to increase its total shareholding in Xanadu to 19.99% with the
issue of approx. 179.1 million shares at an issue price of A$0.04
per share for a total investment of approx. A$7.2M. This represents
an approx. 43% premium to Xanadu’s share price of A$0.028 per share
as of 19 December 2022. This will give Zijin the right to appoint
one Director to the Board of Xanadu Mines Ltd (subject to Zijin
maintaining at least a 10% interest in Xanadu (other than a result
of the dilution of Zijin by Xanadu). An existing Participation
Right will also continue in circumstances where the issue of shares
to a third party requires shareholder approval.
Key features of the Phase 2 Placement are
described in the Appendix to this
announcement.
Funds from the Phase 2 Placement will be used as
follows:
-
Exploration of Xanadu’s highly prospective Red Mountain
project
-
New project generation in southern Mongolia
-
Corporate regulatory and administrative costs.
Phase 3 - Kharmagtai JV
The third and final stage of the partnership
will involve Zijin and Xanadu establishing a 50:50 incorporated
joint venture in Khuiten, the entity currently wholly owned by
Xanadu, and which effectively owns 76.5% of the Kharmagtai project,
along with 13.5% minority holder Ganbayar Lkhagvasuren (an
Executive Director at Xanadu), and 10.0% minority holder QGX
Ltd.
Zijin will subscribe for shares equal to 50% of
Khuiten by way of a share placement for a cash payment of US$35
million to Khuiten, with Xanadu remaining the operator of the
Kharmagtai JV until the earlier of delivery of the Kharmagtai PFS
or 18 months from commencement of the Kharmagtai JV. Thereafter,
driving towards the point of a construction decision, Zijin will
then become the operator of the Kharmagtai JV and take leadership
of the development and operational phase for the mine.
At that point, subject to satisfaction of
certain conditions, Xanadu will also have certain rights to
partially or fully sell down its project interests in the
Kharmagtai project to Zijin. These rights (structured as put
options as described below) provide flexibility for Xanadu to
manage its exposure to the future funding requirements of the
development, as well as provide optionality to potentially realise
value for shareholders after the economics of the project
development are better defined.
The Joint Venture Agreement is typical for
transactions of this nature, with key features described in the
Appendix to this announcement.
Put Options
After completion of the Kharmagtai PFS, Xanadu
will have three choices available to it, enabling the Company to
take an action which generates greatest value to its shareholders
at the time:
-
Fund its share of the project construction; or
-
Sell 25% of the Kharmagtai JV to Zijin for US$25 million in cash,
together with an obligation for Zijin to fund 100% of Xanadu’s
share of expenditure under a loan carry (bearing interest at the
6-month Secured Overnight Financing Rate (SOFR) +
5% p.a.). This loan would cover all of Xanadu’s share of
construction costs, to be repaid out of operating dividends and
other payments or distributions post construction; or
-
Sell Xanadu’s remaining 50% of the Kharmagtai JV to Zijin for US$50
million in cash.
For Xanadu to be entitled to be able to exercise
either of the put options, the Kharmagtai PFS delivered by the
Company must support an Australasian Code for Reporting of
Exploration Results, Mineral Resources and Ore Reserves
(JORC Code, 2012) compliant Ore Reserve or
National Instrument 43-101 (NI 43-101) compliant
Mineral Reserve with a life of mine for the Kharmagtai Project of
at least 20 years (using economic input parameters consistent with
the Scoping Study conducted by the Company dated 6 April 20226 and
the NI43-101 Preliminary Economic Assessment Technical Report
prepared by the Company dated 20 June 20227), with an internal rate
of return of at least 20% and a payback period of less than 6
years. Xanadu will also have to receive all required shareholder
approvals pre-exercise of the put option.
Use of Funds
Funds received from the Phase 3 JV subscription
will enable completion of the Kharmagtai PFS and continued
exploration and development activities, including:
-
PFS studies leading towards the FID and decision to construct;
-
Infill drilling (approximately 30,000 metres) to support a JORC
Code, 2012 compliant Ore Reserve and to support geotechnical,
geometallurgical and sterilisation studies under the PFS;
-
Metallurgical test work and studies to reduce risk and explore
upside opportunities identified in the Kharmagtai Scoping
Study;
-
Mongolian permitting and regulatory approvals;
-
Exploration drilling program targeting higher-grade mineralisation
at depth, higher-grade deposit extensions, and new discovery on the
Kharmagtai tenement; and
-
Associated project development activities.
Advisors
Xanadu is being advised by Jefferies Australia
Pty Ltd (Jefferies) as its financial adviser and
HopgoodGanim Lawyers as its legal adviser for this series of
transactions.
About Zijin Mining Group
Zijin is a multinational mining group dedicated
to exploration and development of gold, copper, zinc and other
mineral resources globally, as well as associated refining,
processing, trading and other businesses. Its operations include
projects and operations in 14 provinces in the People’s Republic of
China (PRC) as well as 13 overseas countries
across Europe, Central Asia, Africa, Oceania and South America. It
is one of the largest Chinese mining companies distinguished by its
significant domestic and international copper and gold resource,
reserves and production.
Zijin’s Mining Operations in China |
Zijin’s Global Mining Operations |
https://www.globenewswire.com/NewsRoom/AttachmentNg/ae782dfd-6b1d-4b72-a33c-2b5231d30c18 |
https://www.globenewswire.com/NewsRoom/AttachmentNg/0100f4c9-6087-4857-9c87-2c16b2789e3f |
About the Kharmagtai Copper-Gold
Project
Kharmagtai is Xanadu’s flagship project, located
in the South Gobi region of Mongolia and has a Mineral Resource
Estimate8 of 1.1 billion tonnes, containing 3 million tonnes of
copper and 8 million ounces of gold. Xanadu recently released its
Kharmagtai Scoping Study9, using a conventional and low risk open
pit mine and sulphide process plant, which demonstrated a US$630
million net present value (NPV), 20% investment
rate of return (IRR) project, with a 4-year
payback, operating as a first quartile costs producer for its first
five years of operation. Multiple upside opportunities were
reported for evaluation during future studies, and gating to
pre-feasibility stage was approved by the Board pending
funding.
The next step of development at Kharmagtai will
complete the Kharmagtai PFS, including delivery of a JORC Code,
2012 Compliant Ore Reserve and all Mongolian permitting and
regulatory approvals to commence construction. This is anticipated
to require 18 months and cost US$20 million to complete.
https://www.globenewswire.com/NewsRoom/AttachmentNg/973197c5-1d3f-468d-b5d2-95547df2c59a
For further information, please
contact:
Colin
Moorhead |
Spencer
Cole |
Executive Chairman & Managing
Director |
Chief Financial Officer & Chief Development Officer |
E: colin.moorhead@xanadumines.com |
E: spencer.cole@xanadumines.com |
P: +61 2 8280 7497 |
|
W: www.xanadumines.com |
|
This Announcement was authorised for release by Xanadu’s Board
of Directors.
All dollar amounts are in Australian dollars
unless otherwise indicated.
Appendix - Key Features of
Agreements
Phase 2 Placement
Completion of the Phase 2 Placement is subject
to the following conditions:
a) Xanadu shareholder approval
under ASX Listing Rule 7.1 and for all other purposes (and any
other regulatory approvals as required);
b) Zijin obtaining PRC
regulatory approvals as required (noting that FIRB approval has
already been obtained);
c) no breaches of warranties by
Xanadu prior to completion;
d) no material adverse change
in respect of Xanadu and its business prior to completion; and
e) the parties entering into
the subscription agreement for the Phase 3 JV and the Company
obtaining any shareholder approval required by ASX under that
agreement.
These conditions must be satisfied on or before
4 months from execution of the subscription agreement for the Phase
2 Placement and the Phase 2 Placement will complete 10 Business
Days after all approvals have been obtained.
On completion of the Phase 2 Placement, Zijin is
to be provided the following rights:
(a) a right to
appoint one director to the Board of Xanadu. The nominee must be
reasonably acceptable to the Board in terms of being of good
character or repute and holding appropriate experience to be a
director of a listed public company; and
(b) continuation of the
Limited and Conditional Participation Right granted to Zijin under
the Phase 1 Placement and summarised in the ASX/TSX Announcement
dated 19 April 2022 (Participation Right). After
completion of the Phase 2 Placement, Zijin will be notified on a
strictly confidential basis of Xanadu’s intention to undertake any
issue of shares to a third party which requires shareholder
approval, and Zijin will have a 5-business day period in which to
indicate whether it wishes to participate in that capital raising
on the basis of, and subject to shareholder approval (and subject
to receipt of any relevant FIRB, PRC or other required regulatory
approvals). This Participation Right is subject to compliance with
ASX Listing Rules and ceases where Zijin’s interest falls below 5%
and remains below that threshold for more than 20 consecutive days
on which the ASX is open for trading.
The right for Zijin to nominate a director to
the Board will continue for as long as Zijin retains not less than
a 10% interest in Xanadu or where its interest falls below 10%
because of either:
(a) an issue
of shares by Xanadu other than in accordance with the Participation
Right; or
(b) an issue
of shares by Xanadu to a third party pending a further issue of
shares to Zijin as a result of exercising its Participation
Right.
Phase 3 Kharmagtai JV
Completion of the Phase 3 JV is subject to the
following conditions:
(a) the
parties entering into the subscription agreement for the Phase 2
Placement and the Company obtaining shareholder approval under that
agreement (and any other regulatory approvals as required);
(b) Zijin
obtaining PRC regulatory approvals as required;
(c) the
issuance to the Company of shares in Khuiten in full and final
satisfaction of the aggregate total of all shareholder loans made
by the Company to Khuiten. These loans represent all exploration
related expenditure at Kharmagtai subsequent to project acquisition
in 2013 (being a current amount of approximately A$59.7 million)
(Xanadu Loan Conversion);
(d) no
breaches of warranties by Xanadu or Khuiten prior to completion;
and
(e) no
material adverse change in respect of Xanadu, Khuiten or their
businesses prior to completion.
These conditions must be satisfied on or before
the same date as for the Phase 2 Placement, being 4 months from
execution of the subscription agreement for the Phase 3 JV and the
Phase 3 JV will complete 10 Business Days after all approvals have
been obtained and Xanadu has completed the Xanadu Loan. This is
expected to occur on or shortly after completion of the Phase 2
Placement.
Xanadu and Zijin have entered into a Joint
Venture Shareholders' Agreement typical for transactions of this
nature, the key features of which include:
- commencement from the date of
completion of the subscription agreement for the Phase 3 JV;
- the primary objective for Xanadu to
use reasonable endeavours to deliver the Kharmagtai PFS within 18
months from commencement of the joint venture;
- funding to be paid from the payment
made by Zijin to subscribe for its 50% interest and thereafter to
be borne by shareholders in their respective proportions. Where a
party fails to meet its funding obligations, the other party will
be entitled to meet that shortfall in return for the issue of
additional shares (resulting in the dilution of the defaulting
shareholder);
- agreement on an initial development
plan and budget for the first 18 months from commencement of the
Joint Venture Agreement (which is expected to take the joint
venture through to delivery of the Kharmagtai PFS). After that,
approval of annual budgets and development plans will require
special majority approval of the board of Khuiten;
- appointment of Xanadu in the role
of the operator of the joint venture from commencement of the joint
venture until the earlier of delivery of the Kharmagtai PFS or 18
months from the commencement of the joint venture, after which
Zijin will assume the role of operator;
- the initial appointment of two
directors from each of Xanadu and Zijin to the board of Khuiten
(one for each 25% interest held);
- a right for Xanadu to appoint the
initial chairperson of the Khuiten board through until the earlier
of delivery of the Kharmagtai PFS or 18 months from the
commencement of the joint venture. Xanadu’s Executive Chairman and
Managing Director, Colin Moorhead, will be the initial appointee as
chairperson. Zijin will have the right to appoint the chairperson
after the lapse of that initial period;
- a right for Xanadu to appoint the
initial General Manager for Khuiten through until the earlier of
delivery of the Kharmagtai PFS or 18 months from the commencement
of the joint venture, with the Deputy General Manager to be
appointed by Zijin. After that initial period has lapsed, these
rights will reverse (provided that Xanadu must retain at least a
25% interest to preserve its right to appoint the Deputy General
Manager);
- equal voting rights from
commencement for Xanadu and Zijin at Khuiten board meetings subject
to any changes in shareholdings (voting rights based upon
respective proportionate shareholdings), with the chairperson not
having a casting vote;
- identified critical business
matters, including certain expenditure or transactions with a value
above US$1,000,000, increasing to US$10,000,000 after the earlier
of delivery of the Kharmagtai PFS or 18 months from the
commencement of the joint venture, will require a special majority
approval by the board of Khuiten (being greater than 67% of votes
which may be cast);
- deadlocks at a board or shareholder
meeting for Khuiten, the following process will be instigated:
- the conduct of a further meeting as
soon as possible to consider the same resolution;
- where there is a continuing
deadlock, negotiations must be conducted between the senior
representatives of Xanadu and Zijin to resolve the dispute;
- where the deadlock continues and
relates to technical or accounting matters, then the dispute is to
be referred to an appropriately qualified independent expert as
appointed by the board; and
- if a deadlock is unable to be
resolved, the board will be taken to have determined that no action
is to be taken on that resolution;
- the grant of the two put options to
Xanadu to require Zijin to acquire from Xanadu either a further 25%
interest in Khuiten (25% Option) or the whole of
Xanadu’s 50% interest in Khuiten (50% Option). The
key terms relating to the exercise of these options are:
- purchase price payable by Zijin is
US$25,000,000 for the 25% Option and US$50,000,000 for the 50%
Option;
- the right to exercise either put
option only arises if Xanadu delivers the Kharmagtai PFS. This PFS:
- must constitute a comprehensive
prefeasibility study of the viability of the Kharmagtai Project
including:
- a comparison of options and
selecting a single path forward for mining method, processing and
infrastructure;
- a financial analysis based on
reasonable assumptions of technical, engineering, operating,
economic factors and the evaluation of other relevant factors which
are sufficient for a qualified person, acting reasonably, to
determine if all or part of the mineral resource may be classified
as a mineral reserve under the JORC Code, 2012 or NI 43-101;
- must support a JORC Code, 2012
compliant Ore Reserve or NI43-101 compliant Mineral Reserve:
- with a life of mine of at least 20
years (using economic input parameters consistent with the Scoping
Study dated 6 April 2022 and the NI43-101 Preliminary Economic
Assessment Technical Report dated 20 June 2022);
- with an internal rate of return of
at least 20%; and
- a payback period of less than 6
years .
- once the Kharmagtai PFS is
delivered, Xanadu will have a 6 month period to exercise either
option, including first obtaining any shareholder, ASX, TSX or
other regulatory approvals which may be necessary as a precondition
to Xanadu being able to exercise the relevant option;
- completion will take place two
months after the exercise of an option by Xanadu; and
- Xanadu will only be able to
exercise either one of these options (i.e., the 50% Option will
lapse if the 25% Option is exercised);
- if Xanadu exercises the 25% Option,
it will remain liable for its respective proportion of the funding
for the progression of the joint venture until commencement of
commercial production at the Kharmagtai Project. This would be
funded by way of a loan from Zijin (Funding Loan)
on the following key terms:
- interest will be payable on the
Funding Loan at SOFR (based on a 6 month term) + 5% per
annum);
- the Funding Loan will rank in
priority to distributions to shareholders;
- 90% of all the amounts of dividends
and distributions due to Xanadu will be directed to Zijin and
applied as repayment of the Funding Loan (interest before
principal);
- repayment of the Funding Loan due
10 years from the date of the commencement of the commercial
production of the Kharmagtai Project or upon earlier termination of
the joint venture or earlier default by the Company; and
- interest will be capitalised
monthly and payable on the Repayment Date.
- pre-emptive rights for the issue of
additional shares in Khuiten, such that new shares will be first
offered to all shareholders in their respective proportions.
Additional shares which have not been accepted by a shareholder
will then be offered to the other shareholders. Any additional
shares which have still not been accepted can then be offered to
third parties (at no lower issue price);
- pre-emptive rights for the
acquisition of shares held in Khuiten proposed to be disposed of by
a shareholder to a third party. Notice and details of the proposed
sale must be provided to the other shareholders and be open for
acceptance, in their respective proportions, for 20 business days.
Offers not initially accepted by a shareholder must be offered to
other shareholders. Remaining unsold shares can be sold to a third
party within 3 months after this process on terms no more
advantageous than those offered to the shareholders; and
- drag along and tag along rights
apply to a proposed sale of shares held in Khuiten by either a
single shareholder holding at least 51% or multiple shareholders
holding at least 75% in aggregate – on terms the same as (drag
right) or no less favourable than (tag rights) the terms on which
the seller proposes to sell its shares to a proposed
purchaser.
_____________________________________
1 ASX/TSX Announcement 19 April 2022 - Strategic Partnership
with Zijin Mining and Placement 2 Kitco -
https://www.kitco.com/news/2022-09-26/Top-10-largest-copper-mining-companies-in-Q2-2022-report.html
3 ASX/TSX Announcement 19 April 2022 - Strategic Partnership with
Zijin Mining and Placement 4 Completed A$5.6M for Phase 1;
Remaining A$7.2M for Phase 2 and US$35M for Phase 3; using 0.68 USD
/ AUD exchange rate5 ASX/TSX Announcement 22 August 2022 - Foreign
Investment Review Board Approves Zijin Investment in Xanadu6
ASX/TSX Announcement 6 April 2022 - Scoping Study - Kharmagtai
Copper-Gold Project7 ASX/TSX Announcement 20 June 2022 - NI 43-101
Preliminary Economic Assessment Technical Report 8 ASX/TSX
Announcement - 8 December 2021 - Kharmagtai Resource Grows to 1.1
billion Tonnes. 9 ASX/TSX Announcement 6 April 2022 - Scoping
Study Kharmagtai Copper-Gold Project
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